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SECURITIES AND EXCHANGE COMMISSION
Litgation Release No. 14875 / April 15, 1996
Accounting and Auditing
Enforcement Release No. 772 / April 15, 1996
SECURITIES AND EXCHANGE COMMISSION v. THE BENNETT FUNDING GROUP,
INC., PATRICK R. BENNETT, BENNETT MANAGEMENT AND DEVELOPMENT
CORPORATION, BENNETT RECEIVABLES CORPORATION AND BENNETT
RECEIVABLES CORPORATION-II, 96 Civ. 2237 (S.D.N.Y.)(JES)
IN RE: THE BENNETT FUNDING GROUP, INC., BENNETT RECEIVABLES
CORPORATION, BENNETT RECEIVABLES CORPORATION II, AND BENNETT
MANAGEMENT AND DEVELOPMENT CORP., CASE NOS. 96-61376, 61377,
61378, 61379 (Bankr. N.D.N.Y.)
On March 28, 1996, The Bennett Funding Group, Inc., ("BFG"),
a finance company headquartered in Syracuse, New York, Patrick R.
Bennett, the chief financial officer of BFG, two of BFG's wholly-
owned subsidiaries, Bennett Receivables Corporation ("BRC") and
Bennett Receivables Corporation-II ("BRC-II"), and Bennett
Management and Development Corporation ("BMDC"), were charged
with fraudulently offering and selling more than $570 million of
securities. The Commission's Complaint alleges that since 1991,
the defendants have been engaged in a massive ongoing "Ponzi"
scheme, employing misstatments and omissions of material fact.
The securities were supposed assignments of equipment leases
("Lease Assignments"), as well as promissory notes ("Notes")
issued by BFG, BRC, or BRC-II.
The Commission alleges that Patrick Bennett and the other
defendants defrauded investors by selling tens of millions of
dollars of Lease Assignments for office equipment leases that
simply did not exist, including the assignment of over $55
million of fictitious and supposedly tax-exempt New York City
Transit Authority leases. The Commission further alleges that in
cases where the defendants did have an underlying lease, the
defendants sometimes fraudulently purported to sell to investors
leases they had already sold to other investors.
The Commission's Complaint alleges that Patrick Bennett, BFG
and BMDC also engaged in numerous sham transactions that enabled
BFG to issue audited financial statements for 1992 and 1993
showing it to be a profitable company, when in fact it was losing
money. In 1992 BFG reported pre-tax income in excess of $2
million, when it should have shown a net loss of at least $1.5
million. Similarly, in 1993, BFG reported pretax income in
excess of $2.6 million, when it should have shown a net loss of
at least $2.5 million. The Complaint alleges that these
transactions were facilitated by false invoices and other
documents that Patrick Bennett caused to be created, and that
Patrick Bennett and BFG lied to the company's auditors to conceal
the fraud. The Complaint alleges that the fraudulent financials
were included in the offering documents provided to investors in
connection with the sale of an estimated $150 million in Notes.
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Moreover, the Commission alleges that defendants failed to
disclose that millions of dollars collected from investors were
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being diverted from BFG to Patrick Bennett and to BMDC, a shell
company that he owns. The Commission alleges that during the
three-year period from 1992 through 1994, a total of more than
$900 million was transferred to BMDC from BFG's general operating
account -- an account funded, in part, with the proceeds of the
sale of BFG Lease Assignments and Notes. The Complaint alleges
that since 1992, BMDC has paid Patrick Bennett over $10 million,
and BMDC has also paid over $30 million to various people and
entities connected to Patrick Bennett and members of his family.
The Commission seeks permanent injunctions against future
violations of Section 17(a) of the Securities Act of 1933,
Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder ("anti-fraud provisions"), disgorgement of all
ill-gotten gains plus prejudgment interest, and civil penalties.
On March 29, 1996, the four corporate defendants, BFG, BMDC,
BRC and BRC-II, filed for protection pursuant to Chapter 11 of
the Bankruptcy Code. On April 11, 1996, the U.S. Bankruptcy
Court for the Northern District of New York granted the
Commission's motion for the appointment of a chapter 11 trustee
to administer the Bennett bankruptcy cases.
Patrick Bennett has agreed, by stipulation, to an asset
freeze and a temporary injunction enjoining him from violations
of the antifraud provisions of the federal securities laws,
pending hearing and determination on the Commission's application
for a preliminary injunction, now scheduled for July 23, 1996.